Business Rates Briefing - Comprehensive Spending Review 2020

The Chancellor’s Spending Review was unveiled yesterday but gave away very little in terms of business rates news for 2021/22; news which was being widely anticipated by ratepayers. Here, Richard Williamson or National Head of Rating shares his take on the Chancellor's review.

On the back of government’s call for evidence earlier in the summer (and the splitting out of tranche one questions on the business rates multiplier and reliefs in England to aid government with gathering responses in time for the autumn budget) ratepayers might have been expecting some comfort on such matters as part of the spending review.

However, there was almost no news mentioned in the Chancellor’s statement and only minimal detail in the accompanying Spending Review 2020 (SR20) publication.

Headlines from the Spending Review

• Further support for businesses announced
• A freeze on the business rates multiplier in 2021/22 meaning that the multiplier in England for “small” hereditaments will remain at 49.9p and for large hereditaments will be 51.2p assuming no further changes to the small business supplement are made.
• Government is considering additional COVID-19 related support through reliefs which will be announced in the new year.
• As a result of the government’s fundamental review of the business rates system, a final report setting out the full conclusions of the review will be published in spring 2021.

This announcement will provide little comfort for many ratepayers in the worst hit sectors and it appears that ratepayers will now have to wait until early 2021 for any further detail on how liabilities might be reduced in 2021/22. Ratepayers will also need to wait until spring 2021 for a formal response to the fundamental review. Eagle eyed readers of the report might also have seen the fiscal table presented in the published statement, which suggests minimal support in 2021/22 compared to this year. Whilst government clearly intend to review reliefs early in the new year, it would appear that there is currently no expectation for a similar level of spend in 2021.

There is, however, some good news for the VOA in the Spending Review as regards some additional funding. This won’t be considered a massive positive by many ratepayers but will at least help the longer-term improvement of the Check, Challenge and Appeal system.

“£22 million to modernise the Valuation Office Agency’s (VOA) IT systems, enabling the agency to become more flexible, efficient and resilient, and £31 million to support the revaluation of Business Rates in 2023.”

Grant Funding - England and State Aid update

Further to our last Business Rates Briefing, we have issued separate guidance to GL Hearn clients on the latest Grant Funding schemes – both the Local Restrictions Support Grant (Closed) scheme (LRSG) and, most recently, the Additional Restrictions Grant scheme, both of which provide potential funding for ratepayers forced to close. An addendum to the LRSG scheme provides for grants during the current 28-day period of national restrictions. For those eligible, cash grants as follows are available:

As with previous schemes these grants are subject to state aid rules.

At present, ratepayers in England, Wales, Scotland and Northern Ireland can claim state aid up to a maximum of EUR 200,000 over a rolling three yearly period under usual de-minimis limits. 2020 saw the introduction of a temporary framework in response to COVID-19, allowing eligible undertakings to claim additional state aid support up to EUR 800,000 subject to certain conditions, the principle one being that the Undertaking was not already in difficulty as at 31 December 2019.

We are aware that on 13 October the European Commission prolonged and extended the temporary framework limits across the European Union for the period from 31 December to 30 June 2021, increasing the temporary framework to EUR 3,000,000 for those undertakings that have suffered at least a 30% decline in revenues compared to 2019. We understand that the UK government has applied to follow suit, but that permission to do so is needed and such permission is linked to wider discussions on state aid as part of the UK’s final BREXIT agreement. As such, UK ratepayers are, for the time being, limited to EUR 800,000 state aid under the current temporary framework provisions.

As soon as we know more on any extension to state aid limits, we will be able to provide more detailed advice.

COVID-19 MCCs and discussions with the VOA

As reported previously, a significant number of COVID-19 MCC Checks have been submitted in England; some 150,000, which exceeds the total number submitted in the previous three years of the Rating List. Further protective Checks are now being submitted to protect ratepayers’ positions given the stance of the VOA on the issue of what allowances might be conceded and for how long.

A more detailed briefing note will be needed in due course but there have been a number of high-level meetings between ratepayer representatives and the VOA to date (Dennis Broughton, Business Rates Director, has been representing GL Hearn in such discussions) with corresponding support from legal Counsel on both sides.

Whilst a good deal of progress has been made, a number of issues of contention remain between the parties and there remains little prospect of an early settlement in respect of most property sectors – either in terms of quantum of allowance or duration.

The three key areas of contention have been:

• Whether the status of social distancing and rules around COCID-19 compliance within buildings can be considered a “relevant matter” to be taken into consideration. The VOA now largely concedes this point.
• Whether it is appropriate to consider that the mode and category of occupation has changed as a result of CoVid19 lockdown restrictions (e.g. an office being treated as a store if, because of the restrictions, if cannot reasonably be used as an office). The VOA is vehemently opposed to such a notion and argues it offends basic rating law.
• What should be assumed as regards transience of the restrictions at the material day – The VOA remain of the opinion that the legislation is inherently time limited and one cannot anticipate the effect on value beyond the six months of the original legislation. Beyond 6 months, if there are physical issues in evidence that affect value then these form part of a new and discrete MCC – hence the potential need to serve a fresh wave of Checks.

Clearly there is much yet to be considered. GL Hearn is involved in the strategic discussions and will be involved in leading sector dialogue with the VOA - particularly across the retail, automotive and distribution sectors.

We will advise of further progress with the VOA in our next and subsequent briefings.

Hopefully this update is helpful in bringing you up to date with changes in the business rates world. We will be updating our GLHIMS system to reflect the proposed freeze in the multiplier in England for 2021/22 and will issue revised rates liabilities for next year reflecting this as necessary.

There may, of course, be further changes announced in the New Year that will change these calculations further. If you have any questions, please do get in touch with Richard Williamson. 

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